Rabois denied the accusations and said an offer by the employee's lawyer to settle the matter for millions of dollars "felt like a shakedown." Ricardo Reyes, a company spokesperson, said Square had investigated the matter and "found no evidence to support any claims."

Rabois said in a blog post that the potential lawsuit had created a "distraction" for the company. In a statement, Reyes said that Square had found that Rabois had "exercised poor judgment that ultimately undermined his ability to remain an effective leader at Square."

The employee, whose identity has not yet been made public, is represented by Steven Berger of Berger & Webb in New York. Berger has not responded to multiple requests for comment on the matter.

It is standard for companies to indemnify employees (e.g., pay their legal expenses) except in cases of clear wrongdoing.

So, at least for now, Square is putting its money where its mouth is in defending Rabois.